A carbon tax – an issue on which top economists and James Shaw find common ground

No sooner had the dust settled after the government decided against introducing a capital gains tax than a visiting big-wig from the United Nations was advising our government to introduce another form of tax.

According to the New Zealand Herald, the head of the UN, Secretary-General Antonio Guterres, has challenged the Government to slap a tax on pollution.

But he was not urging the total tax take be increased.  Instead …

“Shift taxes from salaries, to carbon. We must tax pollution, not people,” he said.

This means reducing income tax as a tax on carbon is applied, Guterres explained.

“We need to make sure that when we adopt measures that increase costs, that we reduce costs in other aspects of the economy.”

He also called for governments to stop subsidies for fossil fuels – “taxpayers’ money should not be used to boost hurricanes, to spread droughts and heat waves… or to melt glaciers”.

At the same time, the merits of a carbon tax were being aired in the Financial Times in Britain, where the Committee on Climate Change has opened up the debate on how greenhouse gas emissions can be reduced and effectively eliminated over the next 30 years..

Nick Butler, an energy commentator for the FT and chair of The Policy Institute at King’s College London, questioned whether the approach the CCC proposes is the most efficient means of achieving the objective of averting the serious risk of global climate change.

The independent adviser to the government lists a raft of steps that could enable Britain to reduce net emissions to zero by 2050 through regulation or changes in the way we live our lives. These include developing the use of hydrogen, using carbon capture and storage, riding bicycles, driving electric vehicles and eating less beef and lamb.

Strangely, the report neglects to argue for the simplest and possibly most effective means of changing the energy mix: a carbon tax.

Introduced at a level designed to alter behaviour (perhaps £50 a tonne), a carbon tax would encourage consumers of all kinds — from manufacturers to domestic customers — to switch to lower-carbon energy supplies and encourage the development of technology to make that possible.

Charged at this level a tax would be far more effective than the current EU-based measures and would allow energy users to identify low-cost alternatives, or where necessary develop them. In the process, it would demonstrate whether the most expensive options, such as carbon capture and the reconstruction of the way we heat buildings, are really necessary. 

Ideally, a carbon tax should be applied internationally, Butler contended.

But Britain could set an example of how a levy system could work and its value.  

In this country, the implementation of a pollution tax was among the recommendations in the Tax Working Group’s final report, released in February this year.

As the NZ Herald noted, Prime Minister Jacinda Ardern has ruled out a capital gains tax, but a new tax on pollution is still on the table and is an area officials are still examining.

A raft of eminent economists have promoted a carbon tax – rather than cap and trade schemes – to deal with climate change.

Harvard University economics professor Greg Mankiw simply argues that when you tax something, you normally get less of it, so to reduce global emissions of carbon, we need a global carbon tax.

But this should not increase the total tax burden. Rather, it should be set at a rate to enable income and company taxes to be reduced commensurately. 

The late Roger Kerras head of the NZ Business Roundtable, agreed. Price certainty was a carbon tax’s big attraction for him and he had spotted no economic heavyweights on the other side of the debate.

Farmers generally have bridled against the idea, but when Don Nicolson was Federated Farmers’ national president, he denounced the Emissions Trading Scheme as a tax from the cradle to the grave which corrupted market principles. He also said a low-level carbon charge may not be such a bad idea.  

In 2014, Green Party co-leader James Shaw said the ETS isn’t working and should be replaced with a transparent and predictable carbon tax.

He favoured a programme “that ensures industry pays a fair price for its emissions and recycles the revenue back to families and small businesses in the form of a tax cut”. 

This view was reflected in the policy promoted by the Greens during the 2017 general election campaign.  They proposed a Kiwi Climate Fund to replace the Emissions Trading Scheme, charging individuals responsible for contributing to climate change pollution.

The Government late last year announced it had bankrolled a $100 million green investment fund which aims to invest with businesses to reduce emissions while also helping them make a profit.

As Minister for Climate Change, Shaw said an increasing number of investors were looking to fund clean, sustainable ventures. The Government’s $100 million start-up capital injection will help achieve this, he said.

But Act Leader David Seymour dismissed this as  “greenwashing” and said:

“If the Government and the Green Party were serious in their views about climate change they would whack a big carbon tax on New Zealanders or change the Emissions Trading Scheme.”

 Taxpayers’ Union director David Farrar back in 2014 declared he saw merit in increasing taxes in one sphere of the economy so long as taxes were trimmed elsewhere and said the proposed tax was simpler than the emissions scheme. It would reduce compliance and administration costs and result in a stable price for emitters.

His views haven’t changed.  At Kiwiblog this week, commenting on the advice from the UN secretary-general, he said:

This is absolutely right. Any environmental taxes should not be used as a way to increase the tax burden overall on New Zealanders. Income tax should be cut as compensation when environmental taxes are imposed.

For once I will say I hope the Government listens to the UN.

Indeed.  We should be taxing what we don’t want, pollution, rather than the things we do want, which is businesses making profits and people earning incomes.

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